Central bank allocates €18.9 million of profit to state budget ({{contentCtrl.commentsTotal}})

Bank of Estonia
Bank of Estonia Source: Siim Lõvi /ERR

The supervisory board of the Bank of Estonia decided on Tuesday to transfer three quarters, or €18.9 million, of what the central bank made in profit last year to the state budget.

This is the maximum that the central bank is allowed to allocate to the state by law.

Mart Laar, chairman of the supervisory board of the central bank, said in a statement: "The scale of the current crisis is extraordinary, there has been no such bundle of problems in Estonia in the last 25 years. At this difficult time, the supervisory board of the central bank supported the proposal of the Bank of Estonia governor Madis Muller to give the state as much of the central bank's profit as possible."

Central bank governor Madis Muller said: "The coronavirus crisis will also bring along additional financial risks for the central bank, too, but the deterioration of the state budget has been much deeper and more immediate. Therefore, we consider it right for the Bank of Estonia to contribute to the strengthening of the country's financial position and we will share a larger portion of the profit than usual with the state."

Typically, the Bank of Estonia allocates a quarter of the previous year's profit to the state and uses the remaining three quarters to increase its capital buffers. The bank wants to increase its capital buffers so that they reach more or less the same level as the average of euro area central banks.

As of the end of 2019, this means a need to increase the level of capital from around 590 million euros to 1.8 billion euros. According to the law, the central bank is currently allowed to give a maximum of three quarters of its profit to the state.

Since 1992, the central bank has allocated a total of 172.2 million euros to the state budget.

The last time the central bank allocated more than a quarter of its profit to the state budget was in 2009 - then, the profit of Bank of Estonia was approximately €80 million, of which €45 million was allocated to the state. The idea of the exceptionally large profit distribution at that time was to support the country's financial situation and Estonia's accession to the euro area.

This was the largest portion of the central bank's profit, that, according to budget rules, could be taken into account in the estimates of the state budget balance. A sufficiently small budget deficit is one of the five criteria that a European Union country must meet in order to join the euro area.

The scheduled meeting of the supervisory board of the Bank of Estonia was held on Tuesday via video call. The next scheduled meeting is to take place on May 26.

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Editor: Helen Wright

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